Capital gains taxation in India was reshaped by the Union Budget 2024, effective 23 July 2024, and those rules apply fully to FY 2025-26. Equity short-term rates rose, long-term rates were standardised, and indexation was largely removed. If you sold shares, mutual funds, or property this year, the figures below decide your tax.
This guide sets out the current rates for each asset type, the exemptions that can reduce your bill, and the common errors that trigger notices.
Quick Answers
- LTCG on listed shares - 12.5 percent on gains above Rs 1.25 lakh a year under Section 112A.
- STCG on listed shares - 20 percent under Section 111A for sales on or after 23 July 2024.
- Long-term property gain - 12.5 percent without indexation, with an option for older property.
- Equity exemption - the first Rs 1.25 lakh of LTCG on listed equity each year is exempt.
- Section 87A rebate - does not apply to special-rate capital gains.
What Is Capital Gains Tax?
Capital gains tax is the tax on the profit made when you sell a capital asset, such as listed shares, equity mutual funds, property, gold, or bonds, under the Income Tax Act, 1961. The gain is short-term or long-term depending on how long you held the asset.
Listed securities and equity mutual funds become long-term after 12 months, while property, gold, and most other assets become long-term after 24 months. The holding period decides both the rate and the available reliefs.
Key Terms Explained
- STCG (short-term capital gain) - gain on an asset held below the long-term threshold.
- LTCG (long-term capital gain) - gain on an asset held beyond the long-term threshold.
- Section 111A - governs STCG on listed equity and equity mutual funds.
- Section 112A - governs LTCG on listed equity and equity mutual funds.
- Indexation - adjusting cost for inflation using the Cost Inflation Index, now largely withdrawn.
Who This Affects
Anyone who sold a capital asset at a profit during FY 2025-26 may owe capital gains tax, whether the asset was listed shares, equity or debt mutual funds, residential or commercial property, gold, or unlisted shares. Even a small equity gain must be reported, although the first Rs 1.25 lakh of long-term equity gain each year is exempt.
Capital gains generally cannot be reported in ITR-1 if they exceed the small LTCG limit, which pushes most taxpayers with gains into ITR-2 or ITR-3.
Capital Gains Rates for FY 2025-26
| Asset | Short-term | Long-term |
|---|---|---|
| Listed equity, equity mutual funds | 20% (Section 111A) | 12.5% above Rs 1.25 lakh (Section 112A) |
| Property and land | Slab rate | 12.5% without indexation |
| Gold | Slab rate | 12.5% |
| Unlisted shares | Slab rate | 12.5% |
For residential or other immovable property acquired before 23 July 2024, a resident individual or HUF may choose between 12.5 percent without indexation and 20 percent with indexation, whichever is lower. For property acquired on or after that date, only 12.5 percent without indexation applies. The Cost Inflation Index for FY 2025-26 is 376.
Exemptions That Reduce Your Capital Gains
- Section 54 - reinvesting long-term gain from a residential house into another residential house.
- Section 54F - reinvesting the net sale value of any long-term asset into a residential house.
- Section 54EC - investing long-term gain into specified bonds, capped at Rs 50 lakh in a financial year.
- Annual Rs 1.25 lakh exemption on long-term listed equity gain under Section 112A.
How to Compute and Report, Step by Step
- Classify each sale - decide whether the gain is short-term or long-term using the holding period.
- Compute the gain - subtract the cost of acquisition and transfer expenses from the sale value.
- Apply indexation only where allowed - limited to the property grandfathering option for pre-23 July 2024 property.
- Apply the correct rate - use Section 111A, 112A, or the slab rate, depending on the asset and term.
- Claim eligible exemptions - apply Sections 54, 54F, or 54EC if you meet the conditions.
- Report in the right ITR - use ITR-2 or ITR-3, since most capital gains do not fit ITR-1.
Common Capital Gains Mistakes
- Forgetting the Rs 1.25 lakh equity exemption - you overpay on small equity gains. Apply the annual Section 112A exemption first.
- Assuming indexation still applies broadly - your computation is wrong. Indexation is now limited to the property grandfathering option.
- Expecting the 87A rebate to cover gains - tax is still due. Special-rate capital gains are outside the rebate.
- Not reporting because the gain seems small - an AIS mismatch notice follows. Report all gains, even exempt ones, in the return.
Penalties and Consequences
Unreported capital gains that surface in the Annual Information Statement can trigger a mismatch notice and reassessment, with interest under Sections 234A, 234B, and 234C on the shortfall.
Underreporting or misreporting income can attract a penalty under Section 270A of 50 percent of the tax on underreported income, rising to 200 percent where the misreporting is deliberate.
Short-Term vs Long-Term at a Glance
| Feature | Short-term (equity) | Long-term (equity) |
|---|---|---|
| Holding period | Up to 12 months | Over 12 months |
| Rate | 20% (Section 111A) | 12.5% (Section 112A) |
| Annual exemption | None | Rs 1.25 lakh |
| Indexation | Not applicable | Not applicable |
Key Takeaways
- Equity STCG is 20 percent and equity LTCG is 12.5 percent above Rs 1.25 lakh a year.
- Long-term property gain is 12.5 percent without indexation, with an option for pre-23 July 2024 property.
- Indexation is now largely removed, surviving only in the property grandfathering option.
- Sections 54, 54F, and 54EC can reduce or defer long-term gains, subject to conditions.
- The Section 87A rebate does not cover special-rate capital gains.
Frequently Asked Questions
What is the LTCG tax rate on equity for FY 2025-26? Long-term gains on listed equity and equity mutual funds are taxed at 12.5 percent on the amount above Rs 1.25 lakh a year under Section 112A.
What is the STCG rate on shares now? Short-term gains on listed equity and equity mutual funds are taxed at 20 percent under Section 111A for sales on or after 23 July 2024.
How is capital gain on property taxed? Long-term property gain is 12.5 percent without indexation. For property acquired before 23 July 2024, you may choose 12.5 percent without indexation or 20 percent with indexation, whichever is lower.
Is indexation still available? Only in a limited way, for resident individuals and HUFs selling immovable property acquired before 23 July 2024.
How can I save tax on capital gains? By reinvesting under Sections 54 or 54F into a residential house, or under Section 54EC into specified bonds up to Rs 50 lakh, subject to conditions.
Which ITR form is used for capital gains? Usually ITR-2, or ITR-3 if you also have business income. Only small LTCG up to Rs 1.25 lakh can go in ITR-1.
Capital Gains Getting Complicated?
Mixing equity, property, and reinvestment exemptions in one return is where errors and notices happen. Regikart's CA team handles capital gains computation and filing. Reach us at [email protected] or +91 70444 94804.
About the author
Srishty
Senior Advisor at Regikart. Want to discuss this in the context of your business?
